Archive for June 2023


“But the lags”

Here we go again. Today produced another slew of reports that the economy is re-accelerating. Here’s Yahoo:

“Wall Street has had recession on the brain since at least mid-2022,” Dutta wrote. “Analysts have a tendency of falling in love with their forecast, and it is clear some are having trouble letting go even as evidence piles up to the contrary. Strong jobs growth? Late cycle! Rally in US equity markets? We had a big rally in mid-2008 too! None of these arguments stand up to scrutiny.” . . .

Dutta added: “There is only so long one can keep claiming that the recession is just six months away. The statute of limitations has now kicked in. There are several reasons to be upbeat on the US economy. The recession clock has been reset.” . . .

And in looking at the housing and auto markets specifically, we see the crux of the argument, with Dutta writing, “the Fed has been tightening for 18 months already, and it is the cyclical-credit sensitive areas of the economy that have shown improvement of late — housing and autos!”

And the Financial Times:

US consumer confidence rose in June to its highest level since January 2022, as people’s assessments of current and future labour market and business conditions improved.

The consumer confidence index increased to 109.7 in June from 102.5 in May, the Conference Board said on Tuesday. Economists had been expecting a level of 104. A reading of 100 refers to 1985 levels.

And this:

[House] prices in 20 major cities increased 0.9 per cent on a seasonally adjusted basis from March to April, according to the S&P Corelogic Case-Shiller index, surpassing analysts’ expectations for a 0.4 per cent rise. Prices over the preceding 12 months were down 1.7 per cent.

The figures represented further evidence the price decline that started a year ago ended in January . . .

Separately, new home sales rose more than forecast to a 14-month high of 763,000 units. In recent weeks, several homebuilding companies have noted demand for new residences as buyers adjust to higher interest rates.

And this:

New orders for non-defence capital goods excluding aircraft, considered a proxy for business investment, rose by 0.7 per cent in May to $73.9bn in the census bureau’s report on durable goods. That outstripped economists’ expectations of a flat reading.

Job growth has exceeded economists expectation almost every single month since early 2022.

One possibility is that those “long and variable lags” have yet to kick in. Another possibility is that interest rates don’t reflect the stance of monetary policy.

I just wrote a whole book on the topic.

Not a headline story

The best way to ascertain if a place has become a banana republic is not to look at the news headlines, rather you should focus on what doesn’t make the headlines. Consider:

1. The leading candidate for a party’s presidential nomination is arrested for stealing secret documents, and refusing to turn them over when asked.

2. He publicly denies they were classified, suggesting that he had declassified the documents.

3. According to that leftist rag the National Review, he then goes on Fox News and admits that the documents were in fact classified. He also admits that he refused to turn them over when asked. In other words, he admits that the federal charges are . . . true.

And yet this bombshell story didn’t even make the front page of the NYT. (Where the headline reported that Hunter Biden admitted guilt in a tax case.) That’s how you spot a banana republic.

To be clear, I don’t think Trump would be convicted by a Florida jury if he shot someone in broad daylight in the middle of Calle Ocho. Nor would he lose a single vote in the GOP primary. Don’t worry Trumpistas, your guy is safe. Don’t waste your time defending him in the comment section—I agree that he will be found innocent by jurors and voters.

But here’s what I find so amusing. Everyone who tries to help Trump gets screwed. Political allies like Pence are called traitors. His lawyers and campaign aides get sent to jail. And now he turns on his voters. In thousands of bars across America, Trumpistas have insisted that Trump had declassified the documents, because he told them so. And now he stabs his supporters in the back by admitting the documents were not declassified.

When I told you back in 2016 that America had become a banana republic, you thought I was hysterical. When I told you the day after the election that Trump would be back you told me he was finished. Now even sober news outlets like The Economist are coming around to my view:

All of which means that you should take seriously the possibility that America’s next president will be someone who would divide the West and delight Vladimir Putin; who accepts the results of elections only if he wins; who calls the thugs who broke into the Capitol on January 6th 2021 martyrs and wants to pardon them; who has proposed defaulting on the national debt to spite Mr Biden; and who is under multiple investigations for breaking criminal law, to add to his civil-law rap sheet for sexual assault.

The next 18 months will be great entertainment. Only one thing could make it even crazier—Trump running against this guy.

PS. This FT essay by Janan Ganesh (my favorite columnist) is about Boris Johnson, but it’s one of the best explanations of Trumpism that I’ve read:

Back in 2016, some of us had to sit through sermons about the need to “listen” to “legitimate grievances” against “broken capitalism”. Perhaps, at one stage, populism really was a howl for a fairer economy. That passed a while ago. It is now a tribalist game.

In retrospect, Johnson and Trump should never have been bunched with Putin and Erdoğan under the “strongman” tag. They converge on tactics — rule-breaking, institutional subversion — but the difference in substance is unbridgeable. The eastern demagogues are nationalists. If the western ones have an -ism, it is nihilism.

And what a mercy that is. Better a chancer than a zealot. Better Johnson than Orbán. Better, in the end, politics as team sport than politics as something all too thoughtful.

Read the whole thing.

“We are not conspiracy theorists”

Prominent lab leaker proponents like Alina Chan were hugely disappointed by the recent data dump from our intelligence services. They predicted bombshells and got nothing of interest. This tweet made me smile:

Presumably our CIA is now controlled by the CCP.

And it’s not just Chan.

Another lab leak bombshell fizzles out

Over the past few weeks, there has been one press report after another of an imminent bombshell showing conclusive evidence in favor of the claim that Covid-19 leaked from a Chinese lab. Today, the US intelligence community finally issued its report, and found no evidence for the claim of a lab leak. But I’m more interested in the hysterical reporting of the media, which is a case study in confirmation bias.

Consider this article in normally reliable Reason magazine:

The lab leak theory of COVID-19’s origins gained tremendous legitimacy this week as The Wall Street Journal confirmed independent reports that the earliest outbreak occurred at the Wuhan Institute of Virology in November 2019.

Wow! That sounds pretty definitive. After all, the WSJ is a very reliable newspaper. There’s just one problem with the claim—it’s untrue. The Reason article links to a WSJ article that makes no such claim. Here’s what they did say:

A prominent scientist who worked on coronavirus projects funded by the U.S. government is one of three Chinese researchers who became sick with an unspecified illness during the initial outbreak of Covid-19, according to current and former U.S. officials.

Today’s intelligence dump confirmed that these three scientists could have had an ordinary respiratory illness, which would not be surprising given that Wuhan was in the midst of a flu outbreak in November 2019.

Again and again, we see lab leak proponents breathlessly claim bombshell evidence for their hypothesis, and each time it turns out to be a lie. A dataset mysteriously taken offline in September 2019? Nope, a lie. Reports of a safety crisis at Wuhan lab in the fall of 2019? Nope, another lie. The virus “looks engineered?” Nope, another lie. And now we find that there is no evidence that lab scientists had Covid in November 2019.

We are back to precisely zero evidence in favor of the lab leak hypothesis, and a great deal of circumstantial evidence pointing to the Wuhan animal market. Unfortunately, the CCP is covering up evidence that the pandemic began at the animal market (and peddling a silly theory about imported frozen fish), so we may never know for sure.

I’m not surprised that the Trump administration tried to peddle this story back in 2020, when it was exposed as having done zero preparation for a Covid pandemic that was already widespread in China. I’m not surprised by the congressional Republicans, who will do anything to discredit China. I am surprised by the number of serious journalists who have been conned by the lab leakers.

Committees should act like committees

Lots of people wondered why the Fed didn’t raise rates at yesterdays’s meeting. Bloomberg offers one explanation:

Just before the FOMC silent period, the incoming vice chairman, Philip Jefferson, gave a speech on May 31 in which he clearly trailed that the Fed would “skip” this meeting:

A decision to hold our policy rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this cycle. Indeed, skipping a rate hike at a coming meeting would allow the Committee to see more data before making decisions about the extent of additional policy firming.

This was a strong signal, and to go against it would have risked not only annoying the markets, but also offending the Fed’s new vice chairman. Ajay Rajadhyaksha, global chairman for research at Barclays Capital Inc., was one of the very few pundits to predict both that the Fed would pause this month only to add 50 basis points to its projected rate at year-end. He said that once Jefferson had made his speech, “they were committed to a June pause despite the data; you can’t have the incoming vice chair be proven immediately wrong.”

This is obviously not a good way to run a central bank. It’s just one more reason why I’ve often advocated having the FOMC adjust its target rate on a daily basis (to the nearest basis point), and set the target at the median vote of the FOMC.

PS. Bloomberg reports that Larry Summers is also skeptical:

“This meeting felt like it was driven as much by the internal political dynamics of the Fed as by any consistent and coherent reading of the economic situation,” said Summers, a Harvard University professor and paid contributor to Bloomberg TV. “And that was a bit disturbing.”